On Behalf of Your Firm, You Make Frequent Trips to Singapore

question 400

Multiple Choice

On behalf of your firm, you make frequent trips to Singapore. You notice that you always have to pay more dollars to get enough local currency to get your nails manicured than you have to pay to get manicured in the United States. This is

• A)inconsistent with purchasing-power parity, but might be explained by limited opportunities for arbitrage in manicuring across international borders.
• B)consistent with purchasing-power parity if prices in Hong Kong are rising more rapidly than prices in the United States.
• C)consistent with purchasing-power parity if prices in Hong Kong are rising less rapidly than prices in the United States.
• D)None of the above is correct.

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Definitions:

Exercise Price

The specified price at which an option contract can be exercised, determining the buy or sell price of the asset under option.

Put Option

A Put Option is a financial contract that gives the holder the right, but not the obligation, to sell a specific quantity of an asset at a set price within a specified time.

Bondholders

Individuals or entities that hold debt securities issued by corporations or governments, entitling them to receive interest payments and the return of principal.